What is inflation targeting and how does it work?

What is inflation targeting and how does it work?

Inflation targeting is a monetary policy strategy where a central bank aims to keep inflation at a specified level.

Why do central banks use inflation targeting?

Central banks use inflation targeting to provide a clear framework for monetary policy, enhance transparency, and stabilize the economy.

What are the benefits of inflation targeting?

Benefits include improved economic stability, predictable inflation rates, and increased public confidence in monetary policy.

Are there any drawbacks to inflation targeting?

Yes, drawbacks can include rigidity in policy responses and potential neglect of other economic indicators like unemployment.

Can you give examples of countries that use inflation targeting?

Countries like Canada, New Zealand, and the UK have successfully implemented inflation targeting as part of their monetary policy.